New Business

Task 1

1.1 Identify what sources of finance are available for a new business.

There are a variety of sources in which a new business can get finance from to help with start up costs, these are grouped into two different categories, internal and external. Some of these would be investment finance, bank loans, government grants, and overdrafts, these are just a few of the sources a new business could use.

Investment Finance

Investment finance can also be known as equity finance, this would mean the business would sell shares to people known as investors which would then become shareholders. The shareholders will be entitled to a percentage of the new businesses profits and will have to contribute a percentage if the business makes a loss, for as long as they remain a shareholder.

Bank Loans

This will be a lump sum agreed by the proposer and the bank in which the bank will credit the necessary funds to the person applying for the loan, and it will be paid back over a fixed period of time that will be agreed at time of application and concluded in the contract of the loan.

Government Grants

Grants don’t just come from the government, they can come from the local council, European union or even charities, the whole idea of a grant is that you are given the agreed sum to carry out such tasks that you need to complete, which does not have to be paid back.

Overdrafts

An overdraft is a fixed amount in which you can exceed your banks balance by to spend money you don’t currently have, but will have to pay back with interest regularly, usually monthly. This will allow you temporarily spend more than what you actually have in debit in your bank account.

1.2 Assess the implications of the different